Tag: Starve the Beast

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Barack Obama Criticism Economics Financial Crisis Foreign Policy Political Philosophy The Media The Opinionsphere The Web and Technology

Must-Reads of the Week: Obama’s Accomplishments and Diplomatic Brand, Facebook, Epistemic Closure, Financial Reform, Our Long-Term Fiscal Crisis and Problem-Solving Capacity, and Mike Allen

1. Obama’s Accomplishments. Jonathan Bernstein explains how Obama has gotten so many of his legislative goals accomplished despite the GOP’s constant obstructionism: By loading up the major bills with many other smaller items. In fact, according to PolitiFact, Obama has accomplished almost a third of his campaign promises if compromises count (and a fifth if they don’t).

2. Facebook v. Google. Ian Schafer in the Advertising Age has a smart take on Facebook’s recent challenge to Google and how Facebook is trying to reorganize the web.

3. Epistemic Closure. Julian Sanchez follows up on his starting post on the epistemic closure of the right wing. Every single link he provides in the article is worth following as the conversation he started extended across many people and was full of insights all around.

4. Obama’s Diplomatic Brand. Marc Ambinder has an excellent post on “the essence of Obama’s diplomatic brand.” While Ambinder acknowledges it’s too early to assess how effective Obama’s diplomacy will be and has been, he does a good job of describing it — and little wonder it bears little resemblance to the weak, anti-American apologizing that the right sees as Obama’s trademark. Ambinder lists a few qualities, but let me focus on one:

Bush assumed a position of direct strength, not deference, when he met with leaders. Obama has been decidedly deferential, which, in the traditional binary way the media covers foreign policy, allegedly suggests weakness. From Obama’s perspective, deference is both strategic and is demanded by the goals he sets out. Treating countries as equals foists certain obligations upon them. It helps leaders deal with internal politics. Year one, Obama was the star, and wasn’t seen as a heavyweight, even by some allies. Year two is different: he’s charted a course on legacy problems (Iran, Iraq, Afghanistan, Middle East peace), so the world knows where he stands.

5. How Financial Reform is Playing. There was some disagreement around the opinionosphere about how financial reform is “playing.” Initially, there was concern that the Republicans would once again follow their tried and true strategy of: Make up stuff that’s really awful — and pretend the bill is about that. There was concern that the Obama administration didn’t have a plan for this contingency, presuming that Republicans would crack under public pressure. And then, the SEC filed suit against Goldman and Blanche Lincoln (who was expected to water down the bill) adopted the strongest language we’ve seen and the Republicans seem to be breaking ranks over this with Bob Corker critizing McConnell’s lies and Chuck Grassley voting for the bill in committee. Kevin Drum suggests McConnell crossed some line of absurdity:

[I]t turns out there really is a limit to just how baldly you can lie and get away with it…[W]e seem to have reached a limit of some kind, and McConnell crossed it. Maybe we should name this the McConnell Line or something so that we know when future politicians have crossed it.

I tend to think Matt Yglesias is more right when he observed:

This time around, though, it doesn’t seem to be working nearly as well, perhaps because people realize we’ve seen this movie before.

6. Our Long-Term Fiscal Crisis. Jonathan Chait observes what may prove to be a fatal flaw in the political strategy of the GOP on fiscal matters if they authentically do support a smaller government:

Distrust of government makes Americans distrust everything people in governemnt say or do, including cut spending, which — with the exception of a few programs seen to help “others,” like welfare and foreign aid — tends to be wildly unpopular.

Their current strategy has been to provoke a fiscal catastrophe and cut government spending in the aftermath. But Chait suggests that this strategy of starve-the-beast governance may not work. On a related note, William Galston has an astutely even-handed piece describing the fiscal problems we are facing and what the solution must realistically be. He quotes Donald B. Marron in National Affairs who explains an idea that is antithetical to ideological right wingers:

Policymakers should not always assume that a larger government will necessarily translate into weaker economic performance. As few years ago, Peter Lindert—an economist at the University of California, Davis—looked across countries and across time in an effort to answer the question, “Is the welfare state a free lunch?” He found that countries with high levels of government spending did not perform any worse, economically speaking, than countries with low levels of government spending. The result was surprising, given the usual intuition that a larger government would levy higher taxes and engage in more income redistribution—both of which would undermine economic growth.

Lindert found that the reason for this apparent paradox is that countries with large welfare states try to minimize the extent to which government actions undermine the economy. Thus, high-budget nations tend to adopt more efficient tax system—with flatter rates and a greater reliance on consumption taxes—than do countries with lower budget. High-budget countries also adopt more efficient benefits systems—taking care, for example, to minimize the degree to which subsidy programs discourage beneficiaries from working.”

Right wingers rarely acknowledge this even as they oppose measures that would improve the efficiency of government (like the VAT). They simply call it “European-style socialism” and move on with addressing why on the substance more efficient government measures shouldn’t be adopted.

7. Our Problem-Solving Capacity. Stephen Walt has a very long and very, very good post that attempts to balance optimism (global violence is at historic lows!) with some pessimism:

One way to think about the current state of world politics is as a ratio of the number of important problems to be solved and our overall “problem-solving capacity.” When the ratio of “emerging problems” to “problem-solving capacity” rises, challenges pile up faster than we can deal with them and we end up neglecting some important issues and mishandling others.  Something of this sort happened during the 1930s, for example, when a fatal combination of global economic depression, aggressive dictatorships, inadequate institutions, declining empires, and incomplete knowledge overwhelmed leaders around the world and led to a devastating world war…

[Today] Washington D.C. has become synonymous with the term “gridlock,” leading the Economist magazine to describe the U.S.  political system as “a study in paralysis.” Obama did get a health care reform package through, but it still took an enormous effort to pass a watered-down bill that pandered to insurance companies and other well-funded special interests. Meanwhile, decisive action to address climate change, the persistent U.S. budget deficit, or financial sector reform remain elusive, and it’s going to get a lot tougher if the GOP makes big gains in the 2010 midterms. Nor is it reassuring to realize that the Republican Party seems to be taking its marching orders from two entertainers — Rush Limbaugh and Glenn Beck — the latter of whom has made it clear that he’s interested in making money and doesn’t really care about public affairs at all…

Nor is this problem confined to the United States. Japan’s ossified political order remains incapable of either decisive action or meaningful reform; the Berlusconi-government in Italy is an exercise inopera bouffe rather than responsible leadership, French President Nicolas Sarkozy’s early flurry of reform efforts have stalled and Mexico remains beset by drug-fueled violence and endemic corruption. Britan’s ruling Labor Party is a spent force, but the rival Conservatives do not present a very appealing alternative and may even lose an election that once seemed in the bag. And so on.

There are some countries where decision leadership is not lacking, of course, such as China (at one end of the size scale) and Dubai (at the other). Yet in both these cases, a lack of genuine democratic accountability creates the opposite problem. These government can act quickly and launch (overly?) ambitious long-term plans, but they are also more likely to make big mistakes that are difficult to correct them in time…

In short, what I am suggesting is that our inability to cope with a rising number of global challenges is not due to a lack of knowledge or insufficient resources, but rather to the inability of existingpolitical institutions to address these problems in a timely and appropriate way.

8. Mike Allen. Mark Leibovitch in the New York Times Magazine has an excellent profile of Mike Allen of Politico and how that organization is changing the news business by covering it like some combination of ESPN and Facebook’s feed of data on the activity of your friends. As a character study, it succeeds given Mike Allen’s unique personality — and as a look at the changing media landscape in politics, it succeeds in raising many questions about where we’re headed. Marc Ambinder responds.

[Image by me.]

Categories
Barack Obama Criticism History New York City Politics The Bush Legacy The Opinionsphere

Must-Reads of the Week: Diabolical Republicans, Strategic Patience, Weiner, China, New York City, -20 Questions, & Glenn Beck’s Obsession With Woodrow Wilson

1. Diabolical Republicans. Noam Scheiber in The New Republic explains how the “diabolical” plan the Republicans have adopted to achieve their fiscal ends (discussed on this blog here) may backfire:

Ever since George W. Bush massively cut taxes back in 2001, squandering much of the $5.6 trillion, ten-year surplus he inherited from Bill Clinton, liberals have assumed that the fiscal game was rigged. Conservatives had been explicit about their starve-the-beast strategy—the practice of creating large deficits through tax cuts in order to force future spending cuts…

“Depriving the government of revenue, it turns out, wasn’t enough to push politicians into dismantling the welfare state,” Krugman wrote. “So now the de facto strategy is to oppose any responsible action until we are in the midst of a fiscal catastrophe.”

…I suspect…that Republicans believe precipitating a fiscal crisis will force Democrats to roll back entitlement spending (i.e., Medicare, Medicaid, and Social Security), which would be both politically unpopular and the realization of the right’s dearest policy fantasy. It’s an altogether brilliant, if diabolical, plan. Except for one minor flaw: There’s a good chance it could vaporize the GOP.

2. Strategic Patience in the Face of Long-Term Problems. David S. Broder, eminence of the press establishment, apostle of bipartisanship at all costs, proponent of convention, seems to have finally come around to Obama with this trenchant observation:

We are beginning to learn that the Obama presidency will be an era of substantial but deferred accomplishments — perhaps always to be accompanied by a sense of continuing crisis. His vaunted “cool” allows him to wait without impatience and to endure without visible despair. It asks the same of his constituents.

The backdrop of the serious long-term issues facing America is precisely what made Obama’s election so important in the first place — as this blog repeatedly argued. David Rothkopf put the matter in a wide-angled perspective:

[T]he reason the health care reform bill is important is not because it was the first major such piece of social legislation in the U.S. in decades, but rather because it represents the first in what will become by necessity an on-going series of efforts to fix deep and serious defects in the American economy. In a decade or two, this legislation is like to be seen by Americans as the beginning of a lengthy, brutal and spasmodic process to cut deficits and restore America’s leadership prospects in the global economy.

3. Answering Sarah Palin. Anthony Weiner meanwhile has arisen as the Democrat’s answer to Sarah Palin and our sensationalized media moment. (Others might argue for Alan Grayson.)

4. Chinese Predictions. Gordon G. Chang, for World Affairs, explains his argument for why the Beijing consensus cannot last and its power will soon begin to wane.

5. New York’s Neighborhoods. Nate Silver, baseball statistician and political polling expert, turned his skills to rating New York’s neighborhoods. Really interesting for locals.

6. Negative 20 Questions. Jason Kottke describes a game that “resembles quantum physics.”

7. Glenn Beck’s Woodrow Wilson Obsession. David Frum puzzles on why Glenn Beck focuses so much on Woodrow Wilson as the beginning point of all things progressive and source of evils in the modern world. There are so many more logical choices, more progressive historical figures of greater note who are more closely aligned to contemporary progressivism. And then he answers his own question:

Here’s a president who took the United States into a very controversial war, ending in an unsatisfactory peace. In response to a domestic terrorist threat, culminating in a deadly attack in lower Manhattan, this president adopted draconian domestic security policies. Oh – and his administration concluded with an abrupt plunge into severe recession.

Any parallels come to mind?

What’s taking place on Glenn Beck’s show is a coy conservative self-conversation. Maybe it’s because I’m in China now, but it reminds me of the way Chinese intellectuals in the late 1970s would discuss the first Qin emperor, as a way of debating – and denouncing – Mao Zedong without explicitly mentioning a sensitive subject.

[Image by me.]

Categories
Criticism Domestic issues Health care History Politics The Opinionsphere

The Continued Failure of Right Wing Social Engineering

[digg-reddit-me]At some point it became part of the standard Republican playbook to criticize liberals for engaging in “social engineering.” Liberals – in this telling – see humans as perfectible creatures who just need the guidance of the a centralized state with scientific-minded engineers to become better. With proper planning and direction longstanding human problems could be taken care of and humankind would exist in a socialist utopia. This view was always a caricature – indeed an appropriation of a term created to describe the early efforts at deliberate manipulation of large populations through marketing and propaganda – from the Nazis to American corporations. But Republicans co-opted this term to describe the grand government projects taken on at the apex of mid-20th century liberalism, as in our hubris we sought to “engineer” enormous changes to the benefit of all society.

This story – this narrative framework – was influential because it struck a note of truth. Mid-2oth century American liberalism saw an exceedingly confident America which believed in the nearly limitless potential of American government action. After all, America – led by its government – had defeated a seemingly unstoppable enemy, pulled the nation and world out of a Great Depression, learned how to split atoms and create enormous destructive and productive power, finally begun to deal with the legacy of slavery, begun providing generous benefits to the elderly, and even sent a man to the moon. The declarations of American liberals of this time were bold and utopian. FDR declared that America must ensure that every individual in the world must have “freedom from want,” a sort of economic right. Lyndon Johnson declared War on Poverty! Richard Nixon (a realist in a liberal era) declared War on Cancer, War on Crime, and War on Drugs! Today this hopefulness seems painfully naive as we learned that every massive government “war” has had massive side-effects while not, as yet, achieving its desired result.

As confidence in government declined in the 1970s, the more thoughtful critics of this liberal tendency saw its core failing as hubris. They suggested a more modest approach in which government would act more as a gardener “cultivat[ing] a growth by providing the appropriate environment” rather than as some craftsman or engineer creating society anew through government coercion and radical changes.

But the Republicans who eventually took power on the wave of disgust, disappointment, resentment, and anger at liberalism’s excesses did not adopt this epistemologically modest approach. Reagan and his ilk replaced liberals’ confidence in the good government could do with the insistence that government was just getting in the way. Their conclusion was simple: Government wasn’t the solution to these problems – it was the problem! Rather than seeing the hubris of liberals as the problem, they thought liberals simply were certain about the wrong things. Their shorthand for this moral lesson was to accuse liberals of attempting “social engineering.” The solution was to cut taxes, to prune government, and to hold out the promise of slashing it eventually (to starve the beast.)

Politics though is about creating and shaping a society that we want to live in. It is less a matter of ideology and policy positions, and more about values. Right wingers saw that the problems they had identified as resulting from liberalism’s excesses did not cease as Republicans cut taxes and regulations and pulled the government back from involvement in the economy. Blaming liberal government action for upsetting the “natural” balance, right wingers yearned to shape society themselves in order to recreate what they had lost. They branded themselves as individualists even as they promoted the tyrannical, collectivist organizations commonly called corporations. From a complex web of ideological positions taken by the Republican Party to build their political coalition came a hodge-podge of goals which (though perhaps not cohering immediately) have solidified into an agenda of right wing social engineering. The Republicans began to use government to encourage the traditional nuclear family of a man, woman and 2 and 1/2 children; to promote and encourage a christianist lifestyle and increase the role and funding of religious institutions; to encouraged a particular brand of “rugged” individualism; and to aid the rise of American corporations at home and abroad.

The logical culmination of this new big government conservatism, this right wing social engineering, was the presidency of George W. Bush, as he increased the size of government mainly by outsourcing work and responsibilities to corporations, as he began 2 wars leading to 2 massive social engineering projects in the Middle East, as he allowed and encouraged government funding of faith-based charities, and most dramatically through his Ownership Society as he sought to transform America into a nation of homeowners with 401Ks and Health Care Savings Accounts instead of Social Security and Medicare and rentals. The right wing’s social engineering agenda extended past Bush though. The main right wing health care alternative adopted in some measure by Milton Friedman, Charles Krauthammer, and John McCain seeks to transform American society to make its citizens more individualistic. This alternative begins by eliminating tax credits for employer-sponsored health insurance and the encouragement of Health Savings Accounts and the evisceration of all regulations on the insurance industry (by allowing competition across state lines where most regulations exist thus creating a “race to the bottom” as states attempt to attract the health insurance industry.) It would culminate in the elimination of Medicare and Medicaid. Many on the right have also made clear their goal remains to obstruct any liberal attempt to solve the fiscal problem they have engineered to give them the opportunity to re-write the social contract.

Looking at current Republican agenda – you see a similar hubris to what they decried as liberals’ “social engineering” – as they seek to remake the entire health care sector and the economy.

Meanwhile, it is the Democrats who had adopted an epistemologically modest approach – of tinkering with our current system to try to save it rather than to provoke a crisis to remake society, tearing apart the social bargain between citizen and government.

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Categories
Conservativism Health care Political Philosophy Politics The Bush Legacy

Real Fiscal Responsibility & Deficit Politics: Republicans

[digg-reddit-me]See Part 1: An Introduction here. Parts 3 and 4 discussing the Democratic approach and then lessons from this moment of “welfare scleroris/imperial overstretch” coming tomorrow and Friday.

Republicans have called themselves, and are once again trying to position themselves, as the party of fiscal responsibility. This is the pendulum swing of deficit politics in its second repetition – as Republicans run up massive deficits during their time in power and then attempt to pass off the blame for raising taxes or cutting programs onto the Democrats who succeed them in office.

The political challenge the Republicans face is intriguing. Their ideology holds the solution to the deficit is to shrink the size of the government. Yet the Republican base consists of corporate America, the military, and the elderly – the largest beneficiaries of current government spending. Given this, it’s not surprising that while in power Republicans have expanded rather than shrinking government. Bush expanded Medicare further than anyone since LBJ created it all while cutting taxes and engaging in two wars and allowing Congress to engorge itself with discretionary spending increases never before allowed. Bush was not an isolated example. Like his apparent role model, Ronald Reagan, he saw deficit spending as a way to win politically in the short term as you gave everyone what they wanted – and protected those interest groups who supported you – while in the long term the incredible irresponsibility would force government to shrink, and perhaps even discredit the idea of a competent or sustainable government program. In other words, deficits were the way to “starve the beast.”

Republicans did not jettison this approach along with Bush when they began to repudiate his legacy. John McCain – for all his talk of fiscal rectitude – offered more of the same in his campaign agenda. He proposed dramatic tax cuts without commensurate spending cuts (while masking this by proposing the elimination of pork barrel spending which represents a minuscule portion of the federal budget.) As an alternative to the stimulus, McCain and the Republicans attempted the same trick – attacking the plan for adding to the deficit with spending while proposing a plan that would add even more to the deficit through tax cuts (which the Congressional Budget Office determined was a less effective way to stimulate the economy.) For Republicans, increasing the deficit by cutting taxes is “fiscally responsible” – while increasing the deficit with spending is “generational theft.”

What’s tricky is how Republicans position themselves with regards to the looming fiscal crisis. The business conservatives who make up an influential portion of the Republican base tend to propose pragmatic but politically impossible solutions like cutting spending to the other core Republican constituencies – the elderly and the military, and sometimes, even the tax and other subsidies to big corporations. The other groups seem primarily concerned with ensuring that their own government dollars continuing to grow. The past two times a liberal has taken office following several terms of extreme fiscal irresponsibility by a Republican though, a semi-independent movement has sprung up, thus changing the political dynamics in the Republican party. This movement of citizens concerned about the size of government, of government debt, and especially of liberals being in charge of this government (which suddenly seems more intrusive now that it is in the control of those they don’t sympathize with) was incarnated in Ross Perot’s two presidential campaigns, the 1994 Republican Revolution, and today, the Tea Parties. In each instance, this movement has coalesced around an inchoate frustration with the way things are coupled with the remarkably fixed position of opposing everything the Democrats do, opposing tax increases, and supporting the reduction of the deficit. Though this logically must lead to cutting government programs, which programs will be cut always remains vague which works well enough until a Republican gets in power.

To balance and rally these constituencies while out of power – the anti-tax fiscal hawks, the elderly relying on government programs, the military reliant on government spending, and the corporations who profit from government favors – Republicans have adopted a framework whereby they condemn any new spending as “generational theft” while protecting the status quo. Within this framework, Republicans claim their protection of the status quo which is screwing over my generation is actually about protecting my generation. This language also comforts the elderly who don’t wish to see any reduction in their benefits. Under the Republican approach, the only elderly who will see a reduction in benefits under the Republican plan are the eventual elderly of the younger generations – as the government programs they are now paying for cease.

The challenge Obama has given to the Republicans though is to propose a solution to the looming fiscal crisis through health care reform. Republicans have responded by claiming that the plans will add to the deficit (contrary to the Congressional Budget Office) while at the same time they have been attacking any measures in the plan which might actually cut costs. For example, Senator Coburn has said, “If you’re a senior and you’re on Medicare, you better be afraid of this bill” – which is a difficult position to maintain while at the same time holding that any deficit spending today is “generational theft.” But it is of course, the only political answer they have.

The Republicans – for short term political expediency – are creating an interesting political dynamic (and an impossible situation for the country.) They are telling the elderly that any spending that adds to the deficit is stealing from their grandchildren and children – while telling them to be afraid of any cuts to the programs they like. Meanwhile, as they filibuster any attempts to alleviate the situation, they inculcate the belief among the younger generation that the government cannot do anything right – pointing to the approaching fiscal disaster as proof. The hope must be that if they are correct that this disaster cannot be averted, their obstruction of any attempt to avoid it will be forgiven, especially if the disaster itself discredits the government, thus bringing the younger generation ideologically closer to the Republican position.

Thus is the logic of deficit politics and starve-the-beast governance.

Categories
Health care Politics The Opinionsphere

Funding Health Care Through A Millionaires’ Tax or One on “Cadillac Plans” – Why Not Both?

The Politico has a piece about how the Democrats are “squabbling” over how to pay for health care reform. The article by Patrick O’Connor and Carrie Budoff Brown considers the two main revenue increases that have been proposed: the Baucus plan attempts to get funding from within the system by taxing “Cadillac” plans; and the House plans levy a “millionaire’s tax” on those making over a million dollars a year.

But given our fiscal situation – and the extent to which it is being driven by Medicare’s rising costs – and given the political landmine that is looming in our coming deficit crisis – why not include both? Take whichever measure is less popular, and use that to shore up the very popular Medicare program. And use the more popular measure to do the essential but less politically rewarding task of helping the uninsured.

What’s the downside of that? Let the Republicans oppose a revenue raising measure as busting the deficit!

The downside of course is that by increasing revenue and making our current level of government more sustainable, the Republicans and other right wingers will switch their criticism to focus on the fact that by running government well and responsibly, we are making more government possible. It’s rather incredible how the “starve the beast” strategy has become so essential to the Republican party’s political success since Ronald Reagan.

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Categories
Barack Obama Conservativism Domestic issues Economics Financial Crisis History Liberalism Libertarianism Political Philosophy The Opinionsphere

A Generational Bargain (in which we are getting screwed)

[digg-reddit-me]Back when California’s looming bankruptcy was in the news, George Will wrote:

California’s perennial boast — that it is the incubator of America’s future — now has an increasingly dark urgency…California has become liberalism’s laboratory, in which the case for fiscal conservatism is being confirmed.

Will may be right about fiscal conservatism – but he’s wrong in laying the blame for California’s problems on liberalism. The fault in California, like the fault in America, is deeper – a refusal by the Baby Boom generation to make tough choices to create a sustainable world, economy, or government. Bill Maher summarized California’s trap best:

We govern by ballot initiative – and we only write two kinds of those: spend money on things I like and don’t raise my taxes.

California’s initiative system aggravated a tendency that has been dominant in American politics for some time now. The problem with California – and America – is a combination of two factors:

  1. a kind of accidental unholy alliance between liberals who push for more government spending to alleviate poverty and better the nation and conservatives who want to cut taxes – with neither group having the power or political will to be fiscally responsible at the same time as they push for their pet projects ((This is a bit unfair on the national level – as George H. W. Bush and Bill Clinton – with opposition Congresses checking them – proved to be exceedingly responsible, putting America on a sustainable course after the tax-cutting, free-spending Ronald Reagan and before the tax-cutting, free-spending George W. Bush.))
  2. the deliberate plan of the right-wingers who want to “starve the beast” – by which they mean encouraging the irresponsible system above of  increasing spending while cutting taxes (and these right-wingers do this knowing that the system is unsustainable and will crash, which is the only way they see to get rid of popular programs.)

This is a story of the cowardice of politicians and the idiocy of people.

This idiocy – in almost all of its forms – can be traced to the ascent of the Baby Boom generation as they took power with the Reagan administration. By increasing spending exponentially while cutting taxes – creating enormous deficits – Reagan supercharged (stimulated) the economy out of the stagflation of the 1970s. At the same time, he began the American government’s practice of becoming dependent on East Asia – relying on Japan to lend vast amounts of its money as our trade deficit with them grew. Reagan also began the trend of deregulation of industries – allowing them to take greater risks and reap greater profits if they succeeded – which also allowed companies to kick off a merger boom, leading more and more companies becoming too big to fail while they were regulated less and less. All of these steps led to an economy focused more on finance than industry – leading, along with factors due to globalization, to America’s industrial decline. The dominance of the financial sector in the economy, which is well known for its boom and bust cycle, led to a series of economic bubbles – and in fact, an economy in which growth was maintained through bubbles rather than real worth.

Beginning with Reagan, president after president stimulated the economy constantly – to avoid having to take the fall. But this system was unsustainable. As the Baby Boomers “surfed on a growing wave of debt” – both public and private – they sought to use debt to meet their rising expectations in the absence of creating real value. This was the generational bargain at the heart of the Reagan presidency – a bargain that allowed America to spend the Soviet Union into the ground and jumpstart the economy from the stagflation of the 1970s – but that, unchecked, thirty years later, now threatens our future.

The Baby Boomers pissed away the prosperity their parents bequeathed them and squandered the opportunities presented to them – and now are busy using their children’s future earnings (our future earnings) to buy their way out of the mess they have created. They avoided the challenges of their times and found people to blame. They focused on OJ Simpson, Britney Spears, Madonna, and Monica Lewinsky – on abortion, Vietnam, gays, and religion – and not on global warming, on campaign finance, on the corruption of our political process, on an overleveraged economy.

After decades of avoiding systematic problems – as the solutions became embroiled in the ongoing culture war – we now must face them. With two wars in the Mid-East, a failing world economy, a growing threat of catastrophic terrorism, and whatever else may come our way, procrastination is impossible. Now it’s time for us to try to salvage this wreck. It remains to be seen if we’re up to it.

David Brooks explained this grave situation facing Obama and the difficult tasks ahead (focusing especially on the growing deficit). Brooks concludes with reasons for hope and despair:

The members of the Obama administration fully understand this and are brimming with good ideas about how to move from a bubble economy to an investment economy. Finding a political strategy to accomplish this, however, is proving to be very difficult. And getting Congress to move in this direction might be impossible.

Your cards do not improve if you complain about the hand you have been dealt. But it is essential to understand how we got here. We also must not be complacent now that a leader who we admire has been given power. Individuals are empowered to a greater extent than ever before in history – for good or ill. Which is why it is never enough to get the right man or woman into public office – even if this is a useful initial step. What we must do – as individuals – is to see the world around us clearly and take steps to effect what changes we can, to live the values we hold in our hearts, to reach out to those affected by our actions.

[Image by orangejack licensed under Creative Commons.]

Categories
China Economics Financial Crisis History

The Reagan Revolution (cont.)

[digg-reddit-me]I’ve gotten a bit of feedback/blowback about having simplified what went on the in 1980s that led to the indisputable higher levels of income disparity, the concentration of wealth, the decimation of manufacturing, and the rise of finance. This wasn’t about Ronald Reagan and his neoliberal policies – it is claimed – but about basic economic forces. I tried to take that into account by pointing out that Reagan was only accelerating the trends that started in the 1970s – but let me go further now.

Another major factor that aided these trends was not entirely within Reagan’s control. As John Judis explained in The New Republic, in the 1980s:

…Japan was threatened by a cheaper dollar. To keep exports high, Japan intentionally held down the yen’s value by carefully controlling the disposition of the dollars it reaped from its trade surplus with the United States. Instead of using these to purchase goods or to invest in the Japanese economy or to exchange for yen, it began to recycle them back to the United States by purchasing companies, real estate, and, above all, Treasury debt…

With Japan’s purchases, the United States would not have to keep interest rates high in order to attract buyers to Treasury securities, and it wouldn’t have to raise taxes in order to reduce the deficit…[That] informal bargain…became the cornerstone of a new international economic arrangement…

Judis goes on to explain how this arrangement evolved through the 1990s:

Asian countries, led by China, adopted a version of Japan’s strategy for export-led growth… They maintained trade surpluses with the United States; and, instead of exchanging their dollars for their own currencies or investing them internally, they, like the Japanese, recycled them into T-bills and other dollar-denominated assets. This kept the value of their currencies low in relation to the dollar and perpetuated the trade surplus by which they acquired the dollars in the first place…

Until recently, there have been clear upsides to this bargain for the United States: the avoidance of tax increases, growing wealth at the top of the income ladder, and preservation of the dollar as the international currency…

[The current financial system] is sustained by specific national policies. The United States has acquiesced in large trade deficits – and their effect on the U.S. workforce – in exchange for foreign funding of our budget deficits. And Asia has accepted a lower standard of living in exchange for export-led growth and a lower risk of currency crises.

This financial arrangment was not created by Ronald Reagan – but he did acquiese to it – and spent America into a level of indebtedness it had not been in since World War II. This arrangment would not be consistent with a ideological neoliberalism that was discussed before – but this arrangment, most importantly, did benefit many of those who were vocal proponents of neoliberalism. 

The revolutions of the 1980s then, was not merely the result of a political movement within America – not anymore than the revolutions of the 1960s were. There were international factors that helped along both domestic movements. The combination of this special relationship with Japan – and later China and other Asian countries – with the neoliberal revolution of Ronald Reagan – led to a concentration of wealth and power within a small class of people rarely seen in a developed country. As Paul Krugman observed:

It’s important to know that no other advanced economy has seen a comparable surge in inequality – even the rising inequality of Thatcherite Britain was a faint echo of trends here.

Combined with the neoliberal principle, as described by Stanley Fish, that “Short-term transactions-for-profit [are better than] long-term planning designed to produce a more just and equitable society,” it becomes more clear how we ended up in this enormous financial mess. 

Take away the regulations; encourage short-term profits; reduce taxes; trim the social safety net; “starve the beast” by spending without taxing; and then supercharge the economy with constant stimulus spending (which is what “starve the beast” is) and easy debt from China and Japan. What you get from this is not only a revolution that undermines the American way of life in the mid-term – as wealth is concentrated and middle class and manufacturing jobs dry up – but an unsustainable economy that is going to collapse, and collapse hard. 

In other words, you get what we have now.

Today, we are reaping the effects of the generational bargain at the heart of the Reagan presidency.

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Barack Obama Criticism Economics Financial Crisis Liberalism Libertarianism Politics The Opinionsphere

What’s Wrong With the Stimulus Plan

[digg-reddit-me]Aside from the partisan power play that seems to be motivating most of the Republican opposition to the stimulus plan, there are a number of fair-minded criticisms.

First, the plan lacks the Obama touch – the deft promise to cut those programs that don’t work and to make sure the ones that are around still do work, the libertarian paternalistic designs of Cass Sunstein, the nimble government program that does not coerce but merely offers opportunity. Of course, there is a sensible reason for this. The stimulus is needed right now – and it will take time to design new programs with this balancing between libertarian principles and liberal ends in mind. So, Obama has decided that this stimulus package must work within existing programs – which Republicans have used as an excuse to attack those programs.

Second, there is not a clear exit strategy. Many of these spending measures and tax breaks are supposed to be emergency measures that the government will only maintain during this crisis – but new spending and cuts in taxes both are hard to roll back. The idea that taxes are hard to raise is, of course, the basis of the “Starve the Beast” strategy that conservatives adopted (as described by George Will):

For years, many conservatives advocated a “starve the beast” approach to limiting government. They supported any tax cut, of any size, at any time, for any purpose, assuming that, deprived of revenue, government spending would stop growing.

But they found out that spending was also hard to cut:

But spending continued, and government borrowing encouraged government’s growth by making big government cheap: People were given $1 worth of government but were charged less than that, the balance being shifted, through debt, to future generations.

Obama’s stimulus plan involves both increasing spending and cutting taxes. The question is – can we then raise taxes and cut spending after this is over? Obama has clearly indicated he intends to – and to shore up America’s long-term fiscal solvency by dealing with entitlement spending too. If he is able to pull off this Grand Bargain, then he will belong in the rank of the best presidents. If he is not, then this temporary increase could have disasterous effects.

Third, by trying to act so quickly, there will inevitably be unintended consequences. To avoid as many of these as possible, the bill should be cleaner and its provisions should work faster.

Fourth, as Robert Samuelson wrote in the Washington Post:

As it turns out, President Obama didn’t make the tough choices on the stimulus package. He could have either used the program mainly (a) to bolster the economy or (b) to advance a larger political agenda, from energy efficiency to school renovation…There were tough choices to be made – and Obama ducked them.

This bill is something of a muddle so far, in part because of the need for speed, and in part because Obama has let the House and Senate Democrats craft the bill, waiting to give his input until the conference in which the bills passed by the House and Senate will be reconciled.

Fifth, the bill offers both short term stimulus measures and downpayments on longer term (and worthy) projects. A stimulus bill should only include spending in the short term. The 75% goal Obama has set is too low. Every dime in the stimulus package should be out by the end of 2010. Kay Bailey Hutchinson ably stuck to this point in her Meet the Press appearance this past Sunday. Her confident demeanor and obvious grasp of policy made me wonder what had led John McCain to bypass her in choosing his Vice Presidential nominee. 

In short, most of the bills problems seem to come from the speed with which it is being forced out. This is a tradeoff Obama seems to be willing to make – as this bill is intended primarily to demonstrate that stimulus is coming and the problem is being taken seriously.

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Economics Election 2008 McCain Politics

Fun Fact About John McCain #11: Fiscal Irresponsibility

[digg-reddit-me]John McCain will balance the budget by cutting earmark spending.

Not even close . Ever heard of the “starve-the-beast” strategy? It’s about the only thing that explains either this history or why McCain’s tax cuts (estimated to cost as much as $700 billion a year [PDF]) far exceed the cost of earmarks (total pork spending since 1991 has totaled about $271 billion).

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Domestic issues Economics Election 2008 Humor McCain Politics The Opinionsphere

Beware of “Fiscal Conservatives”

Succinctly put by Steven Greenberg of the Ventura County Star.

I would have to say it’s an open question as to whether or not these Republicans are adherents to the “Starve the Beast” strategy or are just pure hypocrites on the matter of fiscal responsibility.